Sin tax pill for healthcare

New Delhi, Dec. 26: The finance ministry is considering a suggestion made by the Planning Commission to impose higher taxes on tobacco and alcohol to fund increases in the health budget.

“Tobacco taxes are always a good way of raising revenues while accruing health benefits, and we are looking at the possibility of increasing taxes not only on cigarettes but also on chewing tobacco and bidis,” officials said. Sin tax is a levy on items that are considered as vices such as alcohol, tobacco and gambling.

An ADB study released last month said an increase in tobacco prices by 50 per cent would help to avoid over 40 lakh deaths in the country.

India has among the lowest taxation rates on tobacco in the Asia-Pacific region at an average of 38 per cent for cigarettes and less on bidis, against a WHO recommendation of taxing up to 65-80 per cent of the retail price of tobacco products.

There are about 44.5 million men and 3.26 million women smokers in the country and they can expect to lose a full decade of their lives because of this habit.

Most lives lost to tobacco related diseases are at the productive age of 30-69 years, according to the ADB research paper.

Trade pact block

Top officials, however, said import duties on alcohol may actually start coming down because of various free trade pacts India has or would be signing.

“The India-European Union pact itself will seek reduction in import duties on liquor … hence the scope for increasing taxes there would be limited.”

The plan panel in its 12th Five Year Plan set to be cleared tomorrow has said, “A designated sin tax to finance a part of the health budget can (also) lead to reduced consumption of harmful items (such as tobacco and alcohol) and could be considered.”

The Planning Commission has envisaged public spending, both plan and non-plan, at 1.87 per cent of GDP by the end of the 12th plan against 1.04 per cent in 2011-12, with wider health coverage and cost-free access to essential medicines in public hospitals and clinics.

This comes after many experts, including economist Amartya Sen, advocated a public spending level of 2-2.5 per cent of GDP on health care.

The central health sector outlay would have to be raised by some 34 per cent, including a five-fold increase in health research and an eight-fold increase in AIDS control, to meet this target.

In order to get states to also spend more on healthcare, the plan panel suggests “transfers (for health-care) to states (be) made conditional upon higher expenditure by states on health”.

Officials said the ongoing negotiations on an All-India Goods and Services Tax could be affected as states would seek to increase GST on tobacco and alcohol.

“Quite naturally they would seek to impose similar ‘sin taxes’ to fund their health care budgets as they are the ones who run rural primary health care centres and sub-district and district hospitals,” plan panel officials said.